Q2 2024 Earnings Summary
- Strong performance in new markets and expanding development pipeline: The company is experiencing exceptional results in new markets like Mexico, Salt Lake City, and Louisville, with average weekly sales exceeding $90,000 in Mexico and $100,000 in Salt Lake City. Additionally, they have signed development agreements for over 30 commitments in Florida, indicating robust growth prospects.
- Anticipated improvement in same-store sales in the back half of the year: Despite challenging macroeconomic conditions and negative same-store sales in the quarter-to-date, the company expects an uptick in the back half due to easier comparisons and strategic initiatives such as the successful launch of Smashed Jack, which is mixing at 7.5% and improving average check by 200 basis points. , ,
- Effective management of increased labor costs in California: The company has successfully navigated the impact of higher minimum wages in California, with company-owned restaurants in the state showing positive same-store sales and performing at par or better than non-California markets, demonstrating resilient operational execution.
- Decreasing items per ticket and lower attachment rates are negatively impacting same-store sales, with items per ticket at their lowest since COVID. The company acknowledges challenges in rebalancing back to pre-COVID levels, and pressure on breakfast and combos continues. Despite new product launches like Smashed Jack, same-store sales are still negative.
- Franchisees are experiencing negative comps and lagging behind company-owned stores, particularly in California where higher labor costs due to minimum wage increases may be impacting franchisee profitability. While company-owned restaurants in California are performing better, the franchisees are running negative and need to adjust pricing to drive better traffic.
- Potential delays or slowdown in development in California due to AB 1220, which could impact unit growth targets. While the company is expanding into new markets, some projects may take longer, and the development pipeline could be affected by industry pressures.
-
Sales Guidance and Value Strategy
Q: How critical is value success to hitting sales guidance?
A: Value is essential to achieving our sales guidance amid macro headwinds and low-end consumer pressure. We're introducing "Munchies under $4" price points, $5 offerings like "2 for $4" on the app, and the $5 Jack Pack. We'll have strong value messages across both brands, tailoring price points to the right channels to meet consumer needs. -
Comp Trends and Expectations
Q: What's the outlook on comp trends going forward?
A: Our toughest comp was in Q2, but company-owned stores have turned positive over the last two periods. For Q3, we're looking at about flat comps, with growth anticipated in the back half as we cycle easier comparisons. Initiatives like Smashed Jack and upcoming promotions are expected to benefit us. -
Impact of Smashed Jack and Future Outlook
Q: How is Smashed Jack performing and what's expected ahead?
A: Smashed Jack performed well, mixing at 7.5%, improving average check by about 200 basis points. Although supply issues impacted Q2 by about 100 basis points, we expect Smashed Jack to have a longer-lasting impact at 6%–7% of sales, similar to our ultimate cheeseburger. It will aid our innovation pipeline through product extensions. -
Development Pipeline and Unit Growth
Q: Can you update on development trajectory and pipeline?
A: Our development pipeline is strong, with 88 sites in permitting and construction and 93 development agreements for 409 restaurants. New markets like Mexico, Salt Lake City, and Louisville are performing extremely well, averaging over $70,000 to $100,000 in weekly sales. We're on track to hit new unit openings this fiscal year and expect higher unit growth in fiscal '25. -
Impact of California Minimum Wage Increase
Q: How are California stores faring after minimum wage hikes?
A: California restaurants are performing at par or better than non-California markets. Check increases are offsetting lower transactions. Company-owned stores in California have been positive since March. Strategic price adjustments have helped manage higher labor costs while driving comps. -
Commodity Outlook and Margin Drivers
Q: What's the commodity outlook for the rest of the year?
A: Commodities have been favorable with deflation in the first half. We expect continued benefit in the full year, though moderating in Q3 and Q4 due to rising beef prices. We've hedged well to manage costs. Favorable commodity costs help offset impacts from minimum wage increases. -
Upcoming Product Launches Impact
Q: What impact will upcoming launches have on the brand?
A: The launch of Wings, Ice Cube Munchie Meal, and other products will drive traffic and improve attachment rates. Wings tested extremely well and are expected to provide a substantial lift in the back half. These innovations aim to bring news flow back to the brand. -
POS System, Loyalty, and Kiosks
Q: How will the POS update affect loyalty and kiosks?
A: Rolling out the new POS system by 2025, we're aggressively adding kiosks, starting in California. The new POS enables a next-generation app improving ordering experience and integrating loyalty programs. Kiosks have shown a 15%–20% lift in ticket and labor savings of 4–6 hours per week. -
Menu Mix and Items per Ticket
Q: What's happening with menu mix and items per check?
A: Items per ticket are at the lowest since COVID. We're focusing on add-on strategies like Munchies under $4, loyalty, and digital initiatives to improve attachment rates. Products like wings and other pipeline items aim to drive items per ticket, though we may not reach pre-COVID levels. -
Munchies Under $4 Details and Marketing Spend
Q: Are Munchies under $4 new items, and will you increase marketing spend?
A: Munchies under $4 includes added and tweaked items with margin improvement opportunities. We've reallocated media dollars to offset third-party delivery headwinds and improve share. First-party sales grew over 80% in Q2, contributing positively. Consistent pricing across franchises enhances marketing effectiveness.
Research analysts covering JACK IN THE BOX.